At the open: China inflation relief sends TSX higher
Global stocks and the dollar rose on Friday, bouncing back from losses on the previous day, buoyed by stronger-than-expected Chinese inflation data and encouraging earnings from banks like JP Morgan.
The pound also found traction following recent weakness after the governor of the Bank of England said he was “not indifferent” to the foreign exchange rate.
September producer prices in China unexpectedly rose for the first time in nearly five years, while consumer inflation also beat expectations, easing some concerns about the health of the world’s second-biggest economy.
Canada’s main stock exchange followed the global trend and rose in early trading.
The S&P TSX index was up 41.48 points, or 0.28 per cent, to 14,685.19 in early trading.
The index rose on Thursday, bucking a global trend lower as energy stocks gained with higher oil prices and heavyweight banking stocks also moved higher.
U.S. stocks rose at the open on Friday as upbeat results from JPMorgan and Citigroup boosted shares of other big U.S. banks.
The Dow Jones Industrial Average was up 128.33 points, or 0.71 per cent, at 18,227.27. The S&P 500 was up 10.99 points, or 0.52 per cent, at 2,143.54. The Nasdaq Composite was up 29.89 points, or 0.57 per cent, at 5,243.23.
European shares tracked Asian markets higher. The pan-European STOXX 600 was up 1.5 per cent, helped by rallies in mining and banking stocks, while MSCI’s broadest index of Asia-Pacific shares outside Japan ended up 0.6 per cent.
Equities were still set for their largest weekly drop in over a month after a week which has seen expectations of a Federal Reserve rate hike build and substantial volatility in commodity prices.
While the MSCI World index was up 0.3 per cent on Friday, it was down 1 per cent for the week – its biggest weekly drop since early September.
“Inflation has been quite a worry for some time, but the PPI number today is a very nice change, and a much better number than the negative numbers we had prior. So that gives us a bit of confidence,” said Veronika Pechlaner, European equity fund manager at Ashburton, who said that the falls this week were not a major cause for concern.
“The market felt exuberant heading into this week… We’ve had a strong couple of months, so now a bit of normalization is coming through.”
The dollar index rose 0.3 per cent to 97.834, and was set for a weekly gain of 1.3 per cent – its second straight week of gains. It was down slightly from a seven month high touched on Thursday.
U.S. retail sales rebounded in September amid a surge in motor vehicle purchases and a rise in discretionary spending, pointing to sustained domestic demand that reinforces expectations of an interest rate increase from the Federal Reserve in December.
Boston Fed President Eric Rosengren endorsed the “very high” odds that financial markets have priced in for a U.S. interest rate hike at the end of the year. Federal Reserve Chair Janet Yellen is also due to speak later on Friday.
The Fed’s minutes from its September meeting prompted investors to raise their bets on a December rate rise, and fueled the rally in the greenback this week.
The strength of both domestic and global growth will be a key consideration for the Fed, demonstrated when weak Chinese export numbers on Thursday not only hit global equities but also stopped a rise in U.S. yields and halted the dollar’s advance.
Even despite Friday’s inflation data, Chinese stock ended little changed on Friday as investors wrestled with the mixed economic picture. The producer price increase will be good news for profits and for Beijing as the government struggles to reduce a mountain of corporate debt.
The greenback, which slid Thursday to 103.340 yen on the Chinese trade data, gained 0.5 percent to 104.20 yen, edging back towards a 2-1/2-month peak of 104.635. It was on track to gain 1.2 per cent on the week.
Having started the day with further falls, sterling recovered all of the day’s losses against the dollar on Friday after Bank of England Governor Mark Carney said the bank was not indifferent to the level of the pound, now down almost 20 per cent since Britain voted to leave the European Union in June.
The pound had been pressurized by comments by European Council President Donald Tusk, who will run the Brussels side of Britain’s negotiations on leaving the EU, that the bloc will not offer London any softer terms than a “hard Brexit”. Such a deal would end Britain’s membership of the single market and disrupt access to the country’s main trading partner.
The euro slipped 0.4 per cent to $1.1013 after seeing a 2-1/2-month low of $1.0985 on Thursday. The common currency was en route for a 1.7-per-cent weekly loss. European bond yields edged higher ahead of Ms. Yellen’s speech.
Elsewhere in currencies, the Singapore dollar hit a seven-month low after the economy unexpectedly contracted in the third quarter, keeping alive easing prospects even though the central bank stood pat on policy earlier in the day.
Thailand’s stocks rose 4.6 per cent and the baht gained about 1 per cent versus the dollar after the government urged the country to remain calm after the death of King Bhumibol Adulyadej.
“On the assumption that the succession goes smoothly, I would assume that foreign investor inflows will continue,” said Andrew Bresler, director at Saxo Capital Markets based in Singapore.
The Turkish lira edged down 0.1 per cent, but was up from Thursday’s record low. The market is anxious over government plans to push through an executive presidential system.
Oil slipped below $52 a barrel on Friday, giving up an earlier gain, as abundant crude supplies outweighed tighter U.S. fuel inventories and OPEC’s plans to cut output.
Brent crude reached a 2016 high near $54 on Monday, underpinned by OPEC’s Sept. 28 deal to reduce oil production, before weakening on rising U.S. crude stocks and as the Organization of the Petroleum Exporting Countries’ own numbers showed output is still rising.
Global benchmark Brent was down 4 cents at $51.99, having traded as high as $52.55 earlier. U.S. crude gained 20 cents to $50.64.
“The fundamental backdrop is still bearish,” said Commerzbank analyst Carsten Fritsch. “Every increase is driven by speculation and optimism,” rather than an actual tightening of supplies, he said.
U.S. crude inventories overall rose by 4.9 million barrels, the first increase in six weeks, the government’s Energy Information Administration reported on Thursday.
But stocks at the Cushing delivery hub for U.S. crude futures declined and U.S. inventories of distillates, which include diesel and heating oil, fell by 3.7 million barrels. Gasoline stocks dropped by 1.9 million barrels.
U.S. crude’s structure gained support from the extended outage of a pipeline capable of delivering 450,000 barrels per day of crude into Cushing, traders said.
OPEC’s plan is to cut its supply to between 32.5 million barrels per day (bpd) and 33 million bpd to help to balance supply and demand and revive prices that remain less than half of the levels reached in mid-2014.
However, a lack of much detail in the initial agreement, such as how much each of the 14 members can pump and the scale of any contributions from non-OPEC countries such as Russia, has left analysts skeptical.
“We are doubtful that OPEC’s efforts, even if successful in achieving a targeted 32.5 million bpd in collective output, will prove sufficient to materially alter the global oil balance and deliver a substantial reduction in oil inventories,” BNP Paribas said in a report.
OPEC’s own monthly report on Wednesday put production at 33.39 million bpd in September.
- JPMorgan Chase & Co
- Citigroup Inc
- Crude Oil Front Month Futures
- S&P/TSX Composite
- Dow Jones Industrials
- S&P 500 INDEX
- NASDAQ NMS COMPOSITE INDEX
- Updated October 14 9:59 AM EDT. Delayed by at least 15 minutes.